Equity distribution

Fair equity or keep control?

Anonymous

Last updated on February 11th, 2017

Hello,

I have a startup that I began with a team of co-founders a few months ago. Because the startup is based on my research and a proprietary algorithm that I developed, at that point I retained 52% equity as I wanted to maintain control. The rest is split evenly among them(12% each). My four other teammates and co-founders are experts in their fields of study and complete my work and I promised them that we will renegotiate equity if the time comes, according to the amount of work each person has invested, but I will never give up control and will never change my equity portion. I am happy to say that I am very proud of the passion, commitment and work each one of them has shown, and the way the startup is growing. Their work is invaluable. As such I would like all of us to have equal standing, as otherwise it eats at my conscience. Do you think it is a mistake to give up control and split my equity in such a way that is fair to all? I struggle between what I think is honorable to do and what is business smart. Please advise.

Joe Albano, PhD Using the business of entrepreneurialism to turn ideas into products and products into sustainable businesses.

February 11th, 2017

Thinking out loud, it seems that you may be confounding at least three different concepts:

  • Equity: ownership of the company
  • Revenue / Profit distribution: how money will be divided
  • Governance: how decisions will be made

These concepts are often linked, but they can be negotiated separately. If you do start to think of them as separate concepts, you may be able to work with your legal advisor to develop an agreement that better reflects the way you want to run your company.


M D

February 15th, 2017

"... but I will never give up control and will never change my equity portion ..."

This strong unchanging feeling of ownership and control requires you learn to Compensate these people in other equitable ways.

Christopher Whitson I let those down who say I can't do something

February 16th, 2017

Honestly, all of the answers here accurately answer your question. You need to figure out another way to compensate.


But the question you should be asking is if you should have control. The sheer fact you have to ask this question puts your leadership skills into question.


Owning a lot of shares because you created the IP and running the company because you created the IP are NOT the same thing.

Dane Madsen Organizational and Operational Strategy Consultant

February 11th, 2017

If it's about economics only, create another class of shares where you retain voting control.If it is about control, you may have a different issue.